US businesses, farmers worried by China trade spat: Fed

WASHIGNTON - Despite continued economic growth, US businesses and farmers are increasingly concerned about the trade spat with China which already has pushed prices higher, according to a Federal Reserve survey released Wednesday.

In the wake of the steep tariffs imposed last month by President Donald Trump, steel and aluminum prices have risen around the country, in some cases doubling, the Fed said.

Industries and retailers across the country also continue to report difficulty finding skilled workers, which in some cases is holding back growth, although wages have risen only modestly in response, the nationwide survey showed.

The 12 Federal Reserve districts reported "modest to moderate" economic growth over the past 6 weeks and a generally upbeat outlook. But manufacturing, agriculture and transportation firms "expressed concern about the newly-imposed and/or proposed tariffs."

The trade tensions have escalated in recent weeks, with Washington and Beijing exchanging increasingly severe threats -- most recently with China's tariffs on US sorghum. The dispute centers on US complaints about investment restrictions, theft of American intellectual property and overproduction of metals.

The Cleveland Fed reported steel prices had increased at double-digit rates in some cases, while across the country there were reports of companies stockpiling steel against further price hikes.

In the Boston region companies said the trade dispute represented "a major risk" and that they were already seeing increased aluminum prices.

"These tariffs are now killing high-paying American manufacturing jobs and businesses," one said.

And a contact in the Dallas Fed's region said trade issues "continue to make agricultural producers and lenders nervous."

It is not the first time the Fed has cautioned about the impact of trade policy uncertainty on the economy.

WORKER SHORTAGE 

In a speech Wednesday, New York Federal Reserve Bank President William Dudley said the dispute complicates the work of the central bank.

"By increasing uncertainty around the economic outlook, these shifts in fiscal and trade policy could make it more difficult" for the Fed to balance its dual objectives of low inflation and full employment.

The Fed's so-called beige book survey, which gathers reports from businesses across the nation, was prepared for the central bank's next policy meeting, set for May 1-2.

The Fed raised its benchmark lending rate in March and is expected to hike twice more this year, after 3 increases in 2017 as it tries to guide the economy on a path of continued growth without letting inflation accelerate.

The shortage of workers continues to afflict business across sectors, regions and all skill levels, "restraining job gains in some regions," the beige book said.

Some firms, especially in regions where the labor shortages are most severe, have begun raising pay and benefits, and also have increased overtime, improved training and even turned to automation to replace human workers.

One manufacturer in the Chicago Fed region reported increasing production at its facility in China "because they couldn't find workers for their US operation." 

However, while the survey said wages and prices continued to rise at a "moderate pace," they "generally did not escalate," indicating the Fed does not need to raise the alarm about inflation just yet.

The central bank keeps a close watch on wages since those could feed into inflation, which has been running below the Fed's two percent target despite falling unemployment and economic growth that has picked up steam.

source: news.abs-cbn.com

Nikkei nears two-year high as US hi-tech rebound boosts mood

TOKYO - Japan's Nikkei rose more than 1 percent to hit a near two-year high on Tuesday following a rebound in US hi-tech shares as investors bet on solid growth in the economy and corporate profits globally.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trade.

A big focus for Asia is whether index provider MSCI will later in the day open up its Emerging Markets Index to Chinese mainland shares which have restricted access for foreign investors.

Many investors expect the so-called A shares that make up the majority of China's stock market are likely to be included after being rejected on three previous occasions.

The Philippine Stock Exchange Index opened little changed at 7,943.72.

Wall Street's S&P 500 and the Dow industrial average hit record highs as technology shares bounced back after some sudden falls earlier this month.

"Hi-tech shares just went through a correction. Their valuation is not that expensive, standing far below their levels at the peak of dot-com bubble in 2000. Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in hi-tech shares is over," said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

US financial shares also gained as US debt yields rose after New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, said US inflation should rebound alongside wages as the labour market continues to improve.

The 10-year US Treasuries yield edged up to 2.191 percent from seven-month low of 2.103 percent touched on Wednesday following surprisingly weak US inflation data.

"Even though the Federal Reserve is about to shrink its balance sheet, possibly as soon as in September, US bond yields are kept at low levels, which are very comfortable for stocks," said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities.

"Trade volume is light and whether the market continues to rise depends on whether large cap tech shares continue to rebound," he also said.

The rebound in US bond yields helped to lift the US dollar. The euro traded at $1.1148, just above its two-week low of $1.11315 set on Thursday.

The British pound slipped slightly to $1.2732 from Monday's high of $1.2814, held back by uncertainty over domestic politics and over Britain's economic future, as formal Brexit negotiations got under way on Monday.

Oil prices flirted with this year's lows as market players saw more signs that rising crude production in the United States, Libya and Nigeria undercut OPEC-led efforts to support the market with output curbs.

Brent crude futures traded at $47.01 per barrel, up 0.2 percent on the day but not far from last week's low of $46.70 and five-month low of $46.64 touched in early May.

US crude futures stood at $44.28 per barrel, about a half cent above its five-month low of $43.76 set on May 5.

Safe-haven gold hit one-month low of $1,243.3 an ounce As risk sentiment improved.

source: news.abs-cbn.com

Fed turns to Trump agenda with rate hike nearly in the bag

WASHINGTON - The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase and new economic forecasts providing a first glimpse into whether the U.S. election has reshaped the central bank's growth and inflation outlook.

Fed fund futures show a 97 percent probability that the Fed will lift rates by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday, according to the CME Group.

All 120 economists in a Reuters poll expect a rate hike in the wake of a string of solid U.S. economic reports.

More telling will be whether the stock market rally and jump in bond yields triggered by Trump's Nov. 8 victory will push the Fed to an inflection point of its own and a higher projected pace of rate increases for 2017 and beyond.

The Republican businessman is inheriting a good economy, one that grew by 3.2 percent in the third quarter, the fastest pace in two years. There are, however, concerns that his plan to reduce taxes, cut regulation and increase infrastructure spending could not just boost the economy but also fuel higher inflation.

Since first published in 2012, the Fed's quarterly "dot plot" of projected interest rates has generally moved in one direction – down – and any post-election change will show whether policymakers expect Trump's policies to shake things up.

As of September, Fed officials' median projection was for two rate increases next year and a long run "neutral" level of 2.6 percent. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

"Their path is going to move up faster and a little sooner," said Steve Rick, chief economist for CUNA Mutual Group. He said the economy was running at its potential, and that was the Fed's cue to "exit stage right" and steadily move rates to normal.

Fed officials have long hoped that other government policies would take the place of monetary engineering, which some believe may have lost its effectiveness in lifting economic growth.

They have warned in recent weeks that any new government spending should specifically be designed to boost productivity in an economy that is already near full employment and facing a high public debt burden.

The Fed's new forecasts will indicate if policymakers feel that the monetary-to-fiscal handover is on the horizon, or need more time for the Trump administration's plans to become more detailed and move through Congress.

Fed Chair Janet Yellen is scheduled to hold a press conference at 2:30 p.m. (1930 GMT) on Wednesday to elaborate on the economic outlook and policy statement.

She'll have a broad set of issues to cover since her last press conference in September - from the Federal Open Market Committee meeting itself, to the likelihood she will be replaced in early 2018 and the risks she foresees from the Trump agenda.

Trump repeatedly attacked Yellen during the election campaign, accusing her of holding down rates to help his Democratic rival. Since the election, he has expressed his disapproval of corporate America, criticizing Boeing, and took credit for a deal to keep hundreds of jobs at an Indiana plant from being moved to Mexico.

The president-elect also will be under scrutiny after this week's Fed meeting for clues about how he plans to handle his relationship with the central bank.

"There is a real risk that he could be openly critical of the decision to raise rates next week," Paul Ashworth, an economist with Capital Economics, said in a note last week.

That could upset markets and raise serious issues about whether Trump intends to leave the Fed alone or try to influence its decisions. Top U.S. elected officials, in particular the president, typically avoid criticizing the Fed's short-term rate decisions, emphasizing instead the need for monetary policy to be set independently.

"If he remains silent after the announcement to raise interest rates next Wednesday, then we can begin to assume that it will be business as usual for the Fed," Ashworth wrote.

WATCHING THE MARKETS

Trump's plan to cut taxes and regulation and funnel fresh billions into capital projects must pass Congress, and it may be well after that before any new programs meaningfully effect economic forecasts.

But policymakers also watch the markets closely. It may be hard for the Fed to stick with its ultra-slow pace of rate hikes if a major tax overhaul and fiscal spending plan are unleashed.

TD Securities analysts said that fiscal policy at this point in the economic recovery could prompt "an inflationary demand shock" that adds nearly a percentage point to economic growth, but spurs the Fed to raise rates much quicker than expected - by nearly an extra percentage point per year.

That scenario of a central bank caught behind the curve and forced to act faster is one that Yellen and other policymakers have said they hope to avoid out of fear it could prompt a recession.

Fed officials in recent days have acknowledged the Trump agenda may cause them to switch gears, though it is not clear how soon.

"At this juncture, it is premature to reach firm conclusions," New York Fed President William Dudley said last week.

But, since Trump won the election, Dudley added, "the stock market has firmed, bond yields have risen and the dollar has appreciated ... Market participants now anticipate that fiscal policy will turn more expansionary and that the (FOMC) will likely respond by tightening monetary policy a bit more quickly than previously anticipated."

source: news.abs-cbn.com

Global markets: Stocks nudge higher after final US presidential debate

LONDON - Stock markets inched higher but the Mexican peso was mixed after the third and final US presidential debate, which was judged to have given no clear boost to Donald Trump's hopes of winning the White House.

The peso is seen as the chief proxy for market pricing of the Republican candidate's chances in view of his promises to impose tough limits on immigration. It climbed to a six-week high against the dollar in the immediate aftermath of the debate but was down on the day in European trade.

A win for Democrat Hillary Clinton next month - now predicted clearly by polls - is also seen as opening the way for a rise in interest rates, which a number of US Federal Reserve policymakers have all but promised for December.

The peso lost 0.3 percent in morning trade in Europe to 18.567 per dollar. Against a basket of currencies used to measure its broader strength, the dollar was up just under 0.1 percent, close to seven-month highs hit earlier this week.

"The likelihood of Donald Trump becoming president has nose-dived recently to as low as a one in eight probability ... (and) last night's debate has not provided that game-changing moment," said Lee Hardman, a currency strategist with Bank of Tokyo-Mitsubishi in London.

"The reduction in the political risk premium has helped the US dollar to strengthen broadly this month."

New York Fed President William Dudley overnight gave one of the clearest signals yet that the world's largest economy is ready to take another step away from the ultra-low interest rates that have prevailed since the 2008 financial crash.

He said the Fed would move this year if the economy remains on track. Markets now price in a roughly 70 percent chance of a Fed hike in December.

ECB EYED
The European Central Bank, as expected, changed nothing in policy at its own meeting on Thursday. President Mario Draghi's post-meeting news conference (1230 GMT) will be eyed for confirmation that the bank may extend its bond-buying next year but also for more signs of reticence among policymakers about keeping interest rates endlessly in negative territory.

Among the best news for stocks this week has been a series of upbeat results for US banks, driven chiefly by bond, commodity and currency trading, and the European banking index outperformed the main indexes on Thursday.

France's CAC 40 and Germany's DAX were around 0.2 percent higher in morning trade. Britain's FTSE 100 dipped by around 0.1 percent, but the bank index was up by 0.8 percent.

US stock markets were also set to open marginally higher.

Earlier, Asian stock markets had advanced, propelled by strong US earnings and oil prices that are near a 15-month high. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent. Japan's Nikkei extended its gains to 1.1 percent as the yen weakened.

China's CSI 300 was also up 0.1 percent, while Hong Kong's Hang Seng index climbed 0.6 percent.

With 70 companies in the S&P 500 having reported earnings through Wednesday morning, 80 percent have topped expectations. Third quarter earnings are now expected to increase 0.5 percent, according to Thomson Reuters I/B/E/S, which would be the first quarter of growth in five.

Energy shares also contributed to the gains on Wall Street but US crude was down 1.4 percent to $50.88 a barrel on Thursday, after surging 2.6 percent to close at $51.60 the previous session. Brent crude also fell back to $51.92, after climbing 1.9 percent on Wednesday.

"We have quiet commodity markets as the oil price advance pauses, quiet bond markets amid a lack of direction from U.S. data, and stronger Asian equity markets," analysts from French bank Societe Generale said in a morning note.

"(That hasn't) translated into FX strength around the region, but has helped the yen drift a little lower."

source: www.abs-cbnnews.com

Federal Reserve closer to rate hike, but inflation doubts remain

WASHINGTON - Several voting Federal Reserve policymakers judged a rate hike would be warranted "relatively soon" if the US economy continued to strengthen but doubts on inflation remained, according to the minutes of the Fed's September policy meeting released on Wednesday.

The minutes of the Sept. 20-21 meeting, at which the US central bank held rates steady, also showed the depth of division over timing.

"Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as ... expected," the Fed said in the minutes.

Seventeen policymakers participated at the September meeting, of whom 10 had a vote. In the minutes, both voting members and the wider group were divided on how much more they can allow the labor market to strengthen before raising rates.

Some believe that with the United States already near full employment, inflation could rise too quickly if the Fed waits too long.

The minutes said "it was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation."

US stocks rose slightly following the release of the minutes, while yields on US government debt pared earlier gains.

"They just want a bit more data to be sure. We think they will have those data by the time of the December meeting," said Ian Shepherdson, an economist at Pantheon Macroeconomics.

Three voting members of the rate-setting committee dissented in the September policy statement in favor of an immediate hike, the first time since 2011 that so many have taken such action in the same direction at a single meeting.

In that policy statement, the Fed incorporated new phrasing saying it would maintain current interest rate levels for "the time being," widely seen as a hawkish signal.

According to the minutes, however, a few voters were concerned the inclusion of the phrase "might be misread as indicating that the passage of time rather than the accumulation of evidence" would drive future decision-making.

Although Fed policymakers disagree on whether the current 1.7 percent inflation rate is sufficiently close to their 2 percent objective, many voting members remarked that "there were few signs of emerging inflationary pressures."

Since the meeting, Chair Janet Yellen and several other Fed policymakers have said they expect a rate hike by year-end should the labor market and inflation continue to strengthen.

Almost all agree that after another rate hike, the path of interest rates will be much shallower than the Fed's last tightening cycle. At the September meeting, the Fed scaled back the number of rate hikes it expects next year, to two from three.

New York Fed President William Dudley said earlier on Wednesday the Fed could afford to be "gentle" in raising rates as the US economy has "plenty of room to run."

Last Friday's monthly jobs report for September showed that while employment gains are slowing, they are still well above the level required to offset population growth.

There are two more meetings scheduled this year, on Nov. 1-2 and Dec. 13-14. Traders have all but ruled out a move at the November meeting, which takes place just a week before the US presidential election. They currently see about a 70 percent probability the Fed will raise rates in December, little changed from before the minutes, according to data from CME Group.

Yellen is scheduled to deliver a speech on Friday in Boston, which may offer insight into the Fed's latest thinking.

source: www.abs-cbnnews.com

Stocks, gold fall as Fed hike back on the cards

HONG KONG - Asian stocks fell and the US dollar stood tall on Thursday as markets scrambled to factor in the possibility of another interest rate increase by the Federal Reserve as early as June. Gold stumbled.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent in early trade as the prospect of a second U.S. rate hike in six months raised concerns for emerging markets already grappling with a slowing China.

South Korea and Australia led regional markets lower with 0.5 and 0.6 percent falls each as investors refocused their attention on the growing differences between the health of the world's biggest economy and its global counterparts.

"In the short term, emerging markets are the most vulnerable," Steven Englander, global head of G10 FX strategy at Citibank wrote in a note to clients.

"Overall, the divergence trade is revived until further notice," he wrote in a note to clients, saying the Canadian dollar and the Aussie were vulnerable due to concerns around those economies.

Japan's Nikkei rose early thanks to a weaker yen, which fell to a three-week low against the dollar after minutes of the last Fed meeting suggested a rate increase is firmly on the table at its policy review next month. But the Nikkei later pared its gains to just 0.2 percent.

The Fed minutes noted Fed officials said it would be appropriate to raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment.

Such views helped revive the prospect of a rate hike in June, which had been dismissed by many investors.

CME fed fund futures showed that the probability of a June rate increase by the Fed rose to 34 percent after the release of the FOMC minutes on Wednesday from 19 percent earlier in the day, 15 percent on Tuesday, and less than 1.0 percent a month ago, according to CME group's FedWatch.

Still, many in the market are still sceptical the Fed would raise rates ahead of Britain's June 23 referendum on whether to remain in the European Union, a risk that was pointed out by some Fed policymakers. July may be a stronger possibility.

The dollar index hovered just below a seven-week high of 95.27 scaled overnight, boosted by sharply higher U.S. Treasury yields.

The benchmark 10-year Treasury note yield jumped more than 10 basis points on Wednesday while the yield curve steepened slightly, breaking a multi-month streak of flattening.

The greenback was steady at a three-week high of 110.25 against the yen hit overnight. The euro was pinned down near $1.1214 , its lowest since late March.

"With April activity indicators consistent with a healthy bounce-back in growth, we see risks of two rate hikes in 2016, with the first coming in the June/July time horizon," strategists at Barclays said.

Fed Vice Chairs William Dudley and Stanley Fischer are due to speak later in the day and the markets will be eager to get more details on the Fed's thinking.

Gold took the renewed expectations of a U.S. rate hike on the chin. Prices for the precious metal are inversely correlated to monetary policy easing, fell 0.1 percent to a three-week low $1256 per ounce.

The stronger dollar also weighed on commodities such as oil, which saw U.S. crude futures lose 0.4 percent to $48.00 a barrel. A stronger dollar tends to put non-U.S. buyers of greenback-denominated commodities at a disadvantage.

Three-month copper on the London Metal Exchange fell to as low as $4563.50 overnight, the weakest since Feb. 19 and was hovering near those levels.

source: www.abs-cbnnews.com

Bangladesh Bank officials say to meet NY Fed, SWIFT; seek to recover stolen money

DHAKA - Bangladesh's central bank chief will meet the head of the Federal Reserve Bank of New York and a senior executive from global financial messaging service SWIFT next week to seek the recovery of about $81 million stolen by hackers, officials in Dhaka said.

Two Bangladesh Bank officials said the bank believed both the New York Fed and SWIFT bore some responsibility for the February cyber heist. The officials spoke on condition of anonymity since they were not authorized to brief the media.

The bank's governor Fazle Kabir, New York Fed President William Dudley and a SWIFT representative will meet in Basel, Switzerland around May 10, they and another person briefed by the central bank said. It was not immediately clear who would represent SWIFT.

Spokeswomen for SWIFT and the New York Fed declined comment.

Hackers tried to steal nearly $1 billion from Bangladesh Bank's settlement account at the New York Fed in early February by sending fraudulent transfer orders through SWIFT.

Of the 35 transfer orders sent, 30 were blocked. Four transfers to a Philippine bank for a total of $81 million went through while a $20 million transfer to a Sri Lankan company was reversed because the hackers mis-spelled the name of the firm.

"There is a responsibility the New York Fed has to accept," said one of the Bangladesh Bank officials. "If you stopped 30 transactions, why did you not stop the others?

"SWIFT also bears responsibility," the official said. "It's supposed to be a closed system. Now you have seen they have disclosed that there have been attacks previously on its software."

Last week, SWIFT acknowledged that the Bangladesh Bank attack was not an isolated incident but one of several recent criminal schemes that aimed to take advantage of the global messaging platform used by about 11,000 financial institutions.

The other Bangladesh Bank official said lawyers would be present at the meeting. Ajmalul Hussain, a Dhaka-based lawyer hired by the central bank to help it retrieve the funds, could not be reached for comment. His office said he was out of the country.

It was not immediately known if Bangladesh Bank had retained any U.S. or European law firm to help recover the money.

However the bank said in an internal report in March it was considering "preparing the ground to make a legitimate claim for the loss of funds" against the New York Fed "through a legal process."

Both central bank officials said Kabir, the governor, would be accompanied by an official from the accounts and budgeting department on the trip to Basel and would seek the recovery of the stolen funds.

Basel is the headquarters of the Bank for International Settlements, a group of major central banks.

The stolen $81 million was sent to a bank in the Philippines and quickly passed on to casinos and casino agents. Most of it remains missing. However, one junket operator has returned about $10 million to authorities in Manila and promised to hand over another $5 million.

One of the Bangladesh Bank officials expressed confidence that there would be a resolution to the dispute soon, though he didn't provide any evidence for the optimism.

source: www.abs-cbnnews.com